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The coalition of the willing… Eurozone redux. November 28, 2011

Posted by WorldbyStorm in Economy, European Politics.

What interesting mood music we are being treated to from Europe. Though in truth what is Europe any more? It should be the European Union, but that body, nominally in charge as it may be is oddly quiet. It could be the ECB, but likewise. The 27 heads of government? Er…no… though there are two, or is it one, that counts. And so one reads that:

GERMAN FINANCE minister Wolfgang Schäuble has denied reports that Berlin and France will create a “coalition of the willing” inside the euro zone if EU members reject binding budgetary rules through treaty change.

Rather than convince the EU’s 27 member states or wait for the euro zone 17, Welt am Sonntag newspaper reported yesterday that Berlin and Paris are prepared to create a new “stability club” of eight to 10 members.

Note that this isn’t coming from the eurosceptic British press but from the German press. Does that lend it greater credibility? Perhaps not, but contemporary denials on matters economic in Europe seem much less valid than they might once have.

A German government spokesman declined to comment on the “stability club” proposals yesterday, saying Berlin remain committed to limited treaty change.

A Berlin official added that it was “not Berlin’s ambition” to see the euro zone split in two.

And it makes sense. Constitutional change is a very very dangerous path to take given the ramifications. As I noted at the weekend if it came to an existential In or Out referendum one might suppose that it would be an affirmative vote, but I doubt Enda Kenny would want to bet the park on it. And it might require quid pro quo’s that Germany in its current mood appears almost unable to conceive let alone actually offer.

I’m not a eurosceptic. Critical of the project? Why surely, and deeply and increasingly so. It’s not that I have any illusions as to its nature, but as with any human construct there are both positive and negative aspects, progressive and reactionary ones. That many of us, myself included, for far too long thought that the latter were outweighed by the former is without question a form of credulity, willful too. But there are realities, one of which is that the EU isn’t going anywhere, even – or perhaps particularly – if the eurozone melts into a tighter configuration. So that has to be faced up to, at least as I see it. But what is notable is how the liberal left, broadly speaking the pro-EU centre left, has been unwilling to critique the current events according to the framework they’ve always presented us with in terms of understanding and supporting the EU. The wresting of control and leadership by two states has been effectively ignored, the complete sidelining of EU institutions likewise, the palpable jettisoning of the spirit, and in some respects the letter of EU law likewise. Few voices have been raised to point out that what we have witnessed has been the negation of the stated goals and approaches of the EU.

And, revealingly, the obeisance to markets when the EU was meant to offer a bulwark against them has been all too evident. But if the EU isn’t going anywhere then what does it genuinely stand for in the wake of this? What vision does it articulate? Least worst alternative to every state for itself somehow doesn’t inspire.

Actually, seeing as we’re still thinking about Europe, interesting to see Moody’s warning shot across the bows of European governments…

Moody’s Investors Service warned today the rapid escalation of the euro zone sovereign and banking crisis threatens the credit standing of all European government bond ratings.

“While Moody’s central scenario remains that the euro area will be preserved without further widespread defaults, even this ‘positive’ scenario carries very negative rating implications in the interim period,” the agency said in a report.

And it seems to believe that worse must occur before the EU or whatever subset of governments get their act together:

The ratings agency also noted the political impetus to implement an effective resolution plan may only emerge after a series of shocks, which may lead to more countries losing access to market funding and requiring a support programme.

”This would very likely cause those countries’ ratings to be moved into speculative grade in view of the solvency tests that would likely be required and the burden-sharing that might be imposed if (as is likely) support were to be needed for a sustained period.”

Needless to say Moody’s has recommendations… oh yes.

Moody’s said the euro area is approaching a junction, leading to either closer integration or greater fragmentation.

The likelihood of even more negative scenarios has arisen in recent weeks, Moody’s noted, reflecting political uncertainties in Greece and Italy and a worsening of the region’s economic outlook, among other factors.

”The probability of multiple defaults by euro area countries is no longer negligible. In Moody’s view, the longer the liquidity crisis continues, the more rapidly the probability of defaults will continue to rise,” it said.

And this would mean the following:

Such defaults would increase the chances that one or more members of the bloc would leave the euro area.

”Moody’s believes that any multiple-exit scenario – in other words, a fragmentation of the euro – would have negative repercussions for the credit standing of all euro area and EU sovereigns.”

In the absence of major policy initiatives in the near future that stabilise credit market conditions, or markets stabilising for any other reason, “the point is likely to be reached where the overall architecture of Moody’s ratings within the euro area, and possibly elsewhere, within the EU, will need to be revisited.”

So, now we have Moody’s and noises off from the Germans both talking fairly openly about a contraction of the Eurozone. And again, are we left on the inside or the outside?


1. LeftAtTheCross - November 28, 2011

Has there been any reasonably concise non-partisan debate anywhere on the pros and cons for Europe and for the peripheral states in terms of continuing membership of the Eurozone and the economic and social outcomes one way or the other, also in terms of immediate and longer-term outcomes?

I appreciate it’s difficult to have a non-partisan position on the question. If not non-partisan, then balanced debate perhaps. By which I obviously don’t mean orthodox / mainstream with a thin veneer of objectivity.


WorldbyStorm - November 28, 2011

I don’t think so. It’s a debate notable by its absence except largely at the most polarised ends of the spectrum of opinion. I think that’s telling in itself.


2. Crocodile - November 28, 2011

Here’s a comment from the business pages of the Daily Telegraph…


3. que - November 28, 2011

In a debt market spooked by the idea of a euro break up along comes a rumour like this.

Had a nagging doubt for a while that the germans were keen to get out of the current setup.

Aint seeing nothing to dissuade that impression


Pope Epopt - November 28, 2011

I think Merkel will ride the Euro for as long as Commerzbank, Deutsche Bank don’t need significant further bailouts. Or German bond rates go too high.

Politically she’s doing well to keep her approval ratings up and getting the message out that the Euro is good for Germany, because there is a considerable groundswell, especially in her party that just wants shot of the Euro complication.


4. Pope Epopt - November 28, 2011

Consider this: a Eurozone continually in crisis without actual breakup is ideal for the Goldman Sachs and Hedge Fund vultures of the world.

I was trying to explain the effect of high indebtedness on capitalist society to the young fella, and eventually had to use the metaphor of a pump. Essentially interest payments, especially those on state debt, pump up wealth from the poor and former middle class into the hands of the bond holders i.e. the super rich. (Forget pension funds, they are the patsies who get the sweepings or more often take the losses.)

Arbitrarly high rates of interest whenever Moodys choose to issue another rumour and governments willing to go to any length to ensure repayment must make the parasites think they have died and gone to heaven.

That they are killing their host in the process would not cross their minds.


WorldbyStorm - November 28, 2011

That’s a very good point about pension funds. But yes there does seem to me to be a certain logic to a near crisis Eurozone. Mind you, not sure it would last that long. On the other hand I also think a reworked Eurozone works well for Germany and France as well. Leave the periphery as markets into which Germany can sell but without the resonsibility of actually having to carry any of the can if things turn rough.


Pope Epopt - November 28, 2011

As I’ve said before, I very much expect there to be a plan B when collapse point is reached. An alliance of stronger countries with a net surplus, willing to back each others bonds and most importantly bailout each others banks, would probably allow German economic theology to relax enough to allow the ECB to back those bonds.

What happens in the periphery is anyone’s guess. And whether the role of Ireland as model self-harmer and bridghead for non-European MNCs would be sufficient to be included in the tent, I really don’t know.

The market sociopaths would go for it – it provides a ‘solution’ on which to base a rally and at the same time plenty of prey on outskirts of the flock.


WorldbyStorm - November 28, 2011

That sounds unpleasantly bang on the nail. It doesn’t sound like it would be much of a life either in or out of it.


shea - November 29, 2011

why would being in the euro make a differece to MNC’s i presume if it collapses or not the free trade treaties still exist. if anything they would win on exports as well


5. shea - November 29, 2011

also when mulinationals leave ireland how many of them have gone to other eurozone locations. from there point of view i know its said but how important is it really.


Paul Wilson - November 29, 2011

Norway is not in the EU but is covered by the European Free Trade Agreements which i understand implement much of current EU trade policy, Iceland the same though i could be wrong on that. So MNCs would probably not be affected to much by a collapse.


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